Business gives way on budget surplus stance

Business groups and leaders have dropped their insistence on a budget surplus this financial year, a shift that removes a major source of pressure on the federal government to balance its books.

“We’re being forced to be pragmatic by the reality that the government hasn’t taken the hard yards in reducing its spending," said
Peter Anderson
, chief executive of the Australian Chamber of Commerce and Industry. With the government pledging to find extra funding for big-ticket election promises in the May budget, Mr Anderson said even a deficit of less than the $10 billion to $20 billion forecast by analysts could result in Labor imposing new taxes.

“A deficit in that order still presents industry with risks, so we’re having to batten down the hatches," Mr Anderson said.

The business lobby has renewed calls on Labor to avoid squeezing companies with new taxes, warning that many sectors of the economy are fragile given the high dollar and cautious consumer spending.

Just before Christmas Treasurer
Wayne Swan
dumped his promise to deliver a $1.1 billion surplus this financial year. Since then, the government has refused to give details of its deficit target and whether it would seek a surplus next financial year.

Woodside Petroleum and National Australia Bank chairman
Michael Chaney
lamented that more was not done to deliver a surplus when the terms of trade was booming. “I’m certainly not in favour of slashing and burning so that you have a surplus on paper which can have a further damaging effect on the economy," he told The Australian Financial Review.

He said the pattern of all Western democracies was for governments to make promises during election campaigns that proved unaffordable without going into debt.

“I don’t believe that’s yet the case in Australia, but the danger is that unless you’re funding these sorts of promises in some way through cutting costs in some areas or raising revenue in others, you end up in a rather difficult economic situation."

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A spokeswoman for Mr Swan said: “We will always manage the budget consistent with our medium-term fiscal strategy and support for jobs and growth."

The remarks came as the Australian Industry Group backed away from calls for a surplus.

In its federal budget submission, Ai Group said a “larger deficit should be tolerated" in 2013-14.

Chief executive
Innes Willox
said he had always steered away from a “surplus at any cost" position.

“We are now very wary that the economy is still slowing and that additional cuts to aggregate public sector demand or increases in taxation would further slow the economy," he told The AFR.

“With the RBA now forecasting growth of around 2½ per cent over this calendar year, additional fiscal tightening appears inappropriate.

“It would slow overall business activity at a time when it already lacks momentum."

Mr Willox added that it remained important for the deficit to be reined in over the economic cycle.

“We are very wary that seeking to bring it back to balance when the economy is not travelling strongly would do more harm than good.

“We feel there is a substantial risk that moving too fast to balance the budget would slow business activity, it would also slow employment growth further and it would be likely to pull back on revenue collections too.

“Australia’s public finances are much healthier than Japan’s the US’s and those of most of the European countries. We should be disciplined and we should have a clear path back into surplus but we do not need to tank the economy in the process."